Commissioner of Income Tax vs Kaira Distt. Co-Operative Milk Producers Union Ltd.

R.C. Mankad, J.—The Tribunal has referred to us for our opinion, the following questions u/s 256(1) of the income tax Act, 1961 (''the Act''): 1. Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was justified in law in directing the income tax Officer to recompute the capital employed without deducting the current liabilities and redetermine the deduction admissible to the assessee under the provisions of section 80J and rule 19A of the income tax Rules?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in holding that except for the amount of Rs. 3,029 the balance of the expenses of Rs. 24,307 were not hit by provisions of section 37(4) of the income tax Act, 1961 and consequently were allowable u/s 37(1) of the Act?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in applying the tests laid down by the decision of the Gujarat High Court in the case of Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., in granting deduction of the impugned expenditure of Rs. 24,307

Whether, on the facts and in the circumstances of the case, the Tribunal erred in law holding that expenditure to the extent of Rs. 3,029 was hit by section 37(4) as being expenditure in the nature of maintenance of guest house?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in deleting the amount of Rs. 24,000 on the ground that no part of the said expenditure was disallowable as entertainment expenditure u/s 37(2B) of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case the income tax Appellate Tribunal was right in holding that the assessee was entitled to depreciation on the cost of roads treating them as ''plant''?

Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal was right in law in holding that the amount of Rs. 22,587 being the written down value of the approach road was includible in computing the value of fixed assets?

It is not necessary for us to set out the facts involved in this reference so far as question Nos. 1 to 3 and 5 to 7 are concerned since they are covered by binding decisions. So far as question No. 1 is concerned, it is directly covered by decision of the Supreme Court in Lohia Machines Ltd. and Another Vs. Union of India (UOI) and Others, . Following the said decision, Question No. 1 is answered in the negative and against the assessee. So far as question Nos. 2, 3 and 5 are concerned, they are covered by decision of this Court in Commissioner of Income Tax, Gujarat II Vs. Patel Brothers and Co. Ltd., . Following the said decision, we answer question Nos. 2, 3 and 5 in the affirmative and against the assessee. Question Nos. 6 and 7 are covered by decision of this Court in assessee''s case for the assessment year 1966-67 which is in Kaira District Co-operative Milk Producers'' Union Ltd. Vs. Commissioner of Income Tax, . Following the said decision, we answer question No. 6 in the negative and against the assessee. We may, however, make it clear that though the Tribunal was not right in holding that the assessee was entitled to depreciation on the cost of approach roads treating them as plant, the assessee is entitled to depreciation on the cost of approach roads treating them as building. The depreciation shall, therefore, have to be worked out accordingly. In view of this direction which is given following the decision in the assessee''s case for the assessment year 1966-67 referred to above, it must be held that the assessee is entitled to the inclusion of the written down value of the approach roads in computing the value of fixed assets. The written down value shall, however, have to be worked out against in view of the direction given above. The Question No. 7 shall, therefore, stand answered accordingly. 2. Now, so far as question No. 4 is concerned, the facts are as follows: The assessee had claimed guest house expenses of Rs. 27,336. The claim was disallowed both by the ITO as well as the AAC on the ground that the said expenditure was hit by the provisions of section 37(4). In appeal, however, the Tribunal restricted the disallowance to Rs. 3,029 which related to water-proofing work on the terrace of the guest house. So far as the balance of the expenditure was concerned, the Tribunal held that the expenditure was incurred out of commercial expediency to meet customary hospitality. It may be mentioned here that the said expenditure was incurred for providing lunch or dinner to visitors, employees and technicians who visited the factory. The expenses other than Rs. 3,029 which were incurred for water-proofing work on terrace are the subject-matter of question Nos. 2, 3 and 5 which we have already answered above following the decision of this Court in Patel Bros'' case (supra). Now, so far as expenditure of Rs. 3,029 incurred for the water proofing work on terrace is concerned, in our opinion, such expenditure would be covered by section 30(a) (ii) of the Act. In other words, deduction of such expenditure is allowable under the said provisions. Therefore, such expenditure cannot be disallowed under the provisions of section 37(4). Similar view was taken by the Bombay High Court in the case of Commissioner of Income Tax Vs. Chase Bright Steel Ltd. (No. 1), . We, therefore, answer question No. 4 in the affirmative and against the revenue. Reference answered, accordingly with no order as to costs.